Stock futures drift ahead of August jobs report

Stock futures were in a holding pattern Thursday evening before the release of the Labor Department’s August jobs report, which will offer the latest look at the state of the U.S. labor market recovery.

Contracts on the S&P 500 hugged the flat line after the index set a record intraday and closing high during Thursday’s regular trading day. The Nasdaq had also set a record high, while the Dow ended a three-session losing streak to close in the green.

Investors are anxiously awaiting the government’s monthly jobs report, which will likely show a slower pace of job gains amid the Delta variant’s spread last month. Consensus economists are looking for non-farm payrolls to have risen by 725,000, decelerating from the previous month’s 943,000, with an unemployment rate down to a fresh pandemic-era low of 5.2%. This would be consistent with the deceleration evident in other economic data as well, including in retail sales, consumer confidence, and manufacturing- and service-sector purchasing managers’ indices. 

“We know we’re at peak growth. The question isn’t whether we’re slowing down — it’s what are we slowing down to? If we’re slowing down to, say, 3% sustainable GDP, I can live with that,” David Nelson, Belpointe Asset Management chief strategist, told Yahoo Finance. “But if we’re going to go back down and fall down to below 2%, where we were for the last decade, then we’re probably pretty rich [on valuations].”

Importantly for traders, the jobs report will be the final major labor market datapoint officials at the Federal Reserve receive before their next policy-setting meeting later this month. Members of the Federal Open Market Committee have signaled they are looking especially closely at labor market reports for signs of whether the economy has improved enough to warrant less accommodative monetary policies. 

Namely, Fed Chair Jerome Powell said in public remarks last week that, “If the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.” This would set off the process of removing one key element of the central bank’s crisis-era toolkit for supporting the economic recovery, and which has also served to underpin equity prices. 

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That suggests to traders that equity markets will be looking for an August jobs report that is still solid, but not too strong relative to consensus estimates. 

“The setup for equities especially is a unique one because markets have continued to rise and continued to show a lot of resilience in the face of some waning economic data,” Dave Mazza, managing director for Direxion, told Yahoo Finance. “All of that is not necessarily a great sign, but markets continue to do well because we’re in an environment where some of this bad news is actually good news from the market perspective.” 

On the whole, strategists largely remain upbeat about the pace of the U.S. economic recovery and the backdrop for domestic stocks. While lingering questions remain over the virus and future monetary and fiscal policies, the market has so far looked through these concerns to reach all-time highs.

“We’re continuing to see ups and downs with Delta, but aside from those changes in sentiment at the margin, the bigger picture is that we still have a self-reinforcing recovery,” Rebecca Patterson, Bridgewater director of investment research, told Yahoo Finance. “We’re seeing companies flush with cash, we’re seeing a huge amount of demand that was obviously pushed higher thanks to all the fiscal and monetary stimulus over the last year, companies trying to meet that demand, hiring, being forced to lift wages. As the consumer gets higher wages and jobs, they have more ability to spend.” 

“At the end of the day, it’s the very easy monetary policy, the fiscal still flowing through, and this positive flywheel of businesses and consumers reinforcing each other that’s helping to lift the market,” she added.

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6:01 p.m. ET Thursday: Stock futures trade little changed ahead of jobs report

Here were the main moves as the overnight session kicked off Thursday evening: 

• S&P 500 futures (ES=F): +0.25 points (+0.01%) at 4,535.5

• Dow futures (YM=F): +3 points (+0.01%) to 35,427.00

• Nasdaq futures (NQ=F): -4.75 points (-0.03%) to 15,596.25

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck